Michael Watkins - October 2019

Ten Reasons Why Organizational Culture is So Crucial... and the Implications for Changing It

by Michael Watkins, Ph.D., co-founder of Genesis Advisers and Professor of Leadership and Organizational Change at the IMD Business School

While there is universal agreement that organizational culture exists, and that it plays a crucial role in shaping behavior in organizations, there is little consensus on what it actually is, never mind how it influences performance and, crucially, how leaders can change it.

This is a problem, because without a clear understanding of culture, we cannot hope to discern its connections to other key elements of organizational design, such as strategy, structure and incentive systems. Nor can we develop good approaches to analyzing, preserving and transforming cultures. If we can define what organizational culture is, we will better understand how to diagnose cultural problems and develop better cultures.

Here are ten ways to think about organizational culture and the implications for changing it:

1. Culture is “how we do things there.”

Culture gives rise to consistent, observable patterns of behavior in organizations. As Aristotle put it, “We are what we repeatedly do.” This view highlights that behavioral patterns or “habits” are a central element of culture; it's not just what people feel, think or believe. This view also focuses attention on the forces that shape behavior in organizations and their critical importance in making culture change happen. The implication: it's not enough to focus just on changing values and attitudes - if behaviors don't change, culture doesn't change.

1. Culture acts as a control system - for better and worse.

Culture promotes and reinforce “right” thinking and behaving, and sanctions “wrong” thinking and behaving. Key in this view of culture is the idea of behavioral “norms” that must be upheld, and associated social sanctions that are imposed on those who don’t “stay within the lines.” This view also focuses attention on how the evolution of the organization shaped the culture. That is, how have existing norms and values promoted the survival of the organization in the past? Critically, what happens when the organizational environment shifts dramatically due, for example to technological developments or the rapid emergence of new competitors? The implication: established cultures can become impediments to survival when organizations face substantial environmental changes.

1. Culture is powerfully shaped by incentives.

The best predictor of what people will do in organizations is what they are incentivized to do. By incentives, we mean here the full set of incentives — not just monetary rewards, but also non-monetary rewards such as how people get status, recognition and advancement — to which members of the organization are subject. So to understand an organization's culture, it helps to focus on incentives and the behaviors they encourage and discourage. The implication: changes in incentives can powerfully influence behaviors and hence, over time, reshape culture.

1. Culture helps people “make sense” of what is going on.

Sense-making has been defined as “a collaborative process of creating shared identity and understanding out of different individuals’ perspectives and varied interests.” Culture is more than just patterns of behavior; it’s also jointly-held beliefs and interpretations about “what is.” A crucial purpose of culture is to help orient its members to “reality” in ways that provide a basis for alignment of shared purpose and joint action. The implication: the right changes in culture can better help people "make sense" of emerging challenges and opportunities, and so adapt more easily.

1. Culture is an essential source of shared identity.

Cultures provides not only a shared view of “what is” but also of “why is.” Culture is about “the story” in which people in the organization are embedded, and the values that reinforce that narrative. This view focuses attention on the importance of organizational values and the benefits of having people feel connected to and inspired by them. It also highlights the danger that attempts to change values can result in a loss of a sense of shared identity and connection to the organization. The implication: leaders considering developing a new set of values should weigh the benefits having "better" values against the potential costs of people experiencing a loss of connection to the past, and diminution of the loyalty and engagement that flows from it.

1. Culture is the organizational equivalent of the human immune system.

Culture is a form of protection that has evolved from the situational pressures the organization has faced in the past. It prevents “wrong thinking” and “wrong people” from entering the organization in the first place. It says that organizational culture functions much like the human immune system in preventing viruses and bacteria from taking hold and damaging the body. The implication: organizational immune systems also can attack needed agents of change, and this has important consequences for what needs to happen to successfully on-boarding and integrate people who are "different" into organizations.

1. Organizational culture is shaped by societal culture.

Organizational culture is shaped by and overlaps with other cultures — especially the broader culture of the societies in which it originated and operates. This view highlights the challenges that regional and global organizations face in establishing and maintaining a unified culture when operating in the context of multiple national, regional and local cultures. The implication: leaders must strike the right balance between promoting “one culture” in the organization and allowing for influences of local cultures.

1. Organizational culture always is multi-layered.

The cultures of organizations are never monolithic. There are many factors that drive internal variations in the culture of business functions (e.g. finance vs. marketing) and units (e.g. a fast-moving consumer products division vs. a pharmaceuticals division of a diversified firm). A company’s history of acquisition also figures importantly in defining its culture and sub-cultures. The implication: If acquisition and integration are not managed well, the legacy cultures of acquired units can persist for surprisingly long periods of time and so contribute to a lack of shared identity and challenges for people moving between units.

1. Organizational cultures are dynamic.

Cultures shift, incrementally and constantly, in response to external and internal changes. So, trying to assess organizational culture is complicated by the reality that you are trying to hit a moving target. But it also opens the possibility that culture change can be managed as a continuous process rather than through big shifts (often in response to crises). Likewise, it highlights the idea that a stable “destination” may never — indeed should never — be reached. The implication: organizational cultures always should be evolving and developing; it's far better to continually evolve the culture than to have to drive dramatic shifts.

1. Culture is resilient.

Finally, for precisely the reasons cultures can be so powerful, they are difficult to change. The implication: Changing a culture takes commitment on the part of leadership, often requiring years of concerned and consistent effort, including intensive work to communicate and reinforce desired new behaviors and values.

These ten perspectives provide a holistic, nuanced view of organizational culture that should help leaders better understand their organizations — and change them for the better.

About the Author

Michael Watkins is the co-founder of Genesis Advisers (genesisadvisers.com), a global leadership development consultancy based in Boston Massachusetts, specializing in transition acceleration for leaders, teams and organizations, where he coaches C-level executives of global organizations. He is also Professor of Leadership and Organizational Change at the IMD Business School. He has spent the last two decades working with executives - both corporate and public - as they craft their legacies as leaders.

Watkins is author of the international bestseller The First 90 Days, Updated and Expanded: Proven Strategies for Getting Up to Speed Faster and Smarter, referred to as “The Onboarding Bible” by The Economist. With over a million copies sold in English and translations in 24 languages, The First 90 Days has become the classic reference for leaders in transition and a standard resource of leading change. Amazon named it one of its top 100 business books of all time.

Prior to joining IMD, Watkins was an adjunct professor at INSEAD, and an associate professor at the Harvard Business School and the Kennedy School of Government at Harvard. While on the faculty of these institutions, he designed and taught world-class programs for high potential leader development, corporate diplomacy, and strategic negotiation.

He is the author of eleven books and numerous articles on leadership and negotiation. In the field of leadership these include Master Your Next Move: The Essential Companion to The First 90 Days (HBR Press 2019), Shaping the Game: The New Leader's Guide to Effective Negotiating (HBS Press 2006) and Predictable Surprises: The Disasters You Should Have Seen Coming and How to Avoid Them (HBS Press 2004). Predictable Surprises was named one of the best business books of 2004 by Strategy + Business and won the 2006 annual Kulp-Wright Award from The American Risk and Insurance Association. He is also the author of numerous Harvard Business Review articles, including "Initiative Overload" (2018), "Onboarding Isn't Enough" (2017), "Leading the Team You Inherit" (2016), "It's All About Day One" (2013), "How Managers Become Leaders" (2012), "Picking the Right Transition Strategy" (2009), "The Leadership Team: Complementary Strengths or Conflicting Agendas" (2007) and "The Successor's Dilemma" (2000).

Originally from Canada, Michael Watkins received his undergraduate degree in Electrical Engineering from the University of Waterloo, did graduate work in law and business at the University of Western Ontario, and completed his Ph.D. in Decision Sciences at Harvard University.